Recently, Dateline took a look into Annuity University, seminars designed to teach brokers how to sell annuities to the elderly. Undercover, the Dateline producers infiltrated seminars and sales calls to show how the salesmen deceive would-be customers.

Dateline’s four-part special shows how these particular salesmen play down or intentionally ignore surrender fees, claim annuities are more liquid than CDs, and “puff up” their credentials by putting their photos on official-looking books and magazines and by creating recordings of fake radio shows.

Agents in these seminars are taught to treat the elderly like they are 12 years old and use scare tactics. They are instructed to tell clients that money is riskier in an FDIC-insured bank account than in an annuity product.

I firmly believe that any customer has the responsibility to research any financial product before purchase. Problems arise when seniors (or others) are trusting and when agents flat out lie. It’s difficult to make informed decisions if the information you receive is intentionally incorrect or misleading.

Not all annuity salesmen follow these tactics, of course. I would suggest being wary of any salesperson whose fiduciary interest is in their own commission from the sale. Not all annuity products are bad, either. Even Ben Stein is a big fan (with friends in the annuity business).

I saw this special, and it was great. It is high time that the media focus on the misleading tactics annuity salesmen conduct.

Personally, I think annuities are extremely limited in their usefulness. The only parties guaranteed to make money with annuities is the salesman and the insurance company. The costs are excessive, investment selections usually stink, and the tax benefits are overrated considering you get a 15% cap gains rate.

What most folks don’t realize is annuities pay the highest commissions. The load on a mutual fund is capped at 5.75%, but annuities, especially equity income annuities which were the focus of the Dateline piece, offer brokers up to 13% commission. Guess what your broker is going to recommend you buy if they had a choice between 5.75% and 13%.

Wait a minute, the story Dateline did was needed as there are many abuses of EIA sales, but the story only talked about EIA’s and no other type of annuity. I do not like EIA’s but traditional fixed annuities are ok and variable annuities are also ok. Why would I say this? Simple, a fixed annuity is safe has liquidity and offers higher yield’s and minimum guaranteed interest rate than CD’s or bond’s.

A variable annuity offers guaranteed living benefits and work for income distribution planning. VA’s offer a predictable and consistent income stream without annuitization. I know everyone jumps on the 15% cap gains treatment, but get real most distributions from mutual funds are short-term gains and taxable at ordinary income rates, not the 15%. Plus, if you lose money the tax treament means nothing as your income goes down the tubes.

No, I do not sell VA products, but I know a lot about them. The Dateline story, although accurate for certain products, was slanted to condemn the whole industry for a few peoples greed.

Scott: The Dateline piece wasn’t condemning the whole industry, it was condemning a select training program and the salespeople who “graduate” from said program.

Fixed and variable annuities can certainly have surrender fees like EIAs, and many do. The issue isn’t about the capital gains rate, it’s about liquidity and fees. Although there are exceptions, most annuities are not as liquid as other investment options offering the same yields due to surrender fees and management fees. This article succinctly outlines the problems with various annuity products.

Beyond this, the real issue is about salespeople misleading or lying to people who for whatever reason don’t know better.

Annuities can be decent financial products for some people, but one can only be sure if it is the right product when they are fully and truthfully explained, not pushed to the customer to earn a high commission.

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